Bruce Henning of Energy and Environmental Analysis Inc.(EEA) told a Senate committee Thursday that while the financial failure of Enron Corp. caused some disruptions in the natural gas and electricity markets, the disruptions remained “relatively minor.”

“Given the scope of Enron’s activity within the gas and electricity markets, the absence of a significant disruption in energy markets is a credit to the marketplace and to the people who make the energy marketplace work,” the EEA official said during a Senate Governmental Affairs Committee hearing. “Throughout the collapse of Enron, supplies of gas and electricity have continued to be delivered to consumers. The reliability of the energy delivery system has not been compromised.”

Nor have gas and electricity prices for retail customers been “significantly affected” by Enron’s downfall. Retail gas customers of Enron have generally been able to switch to regulated utilities or other energy marketers, and the prices that they pay for their gas largely reflects current market fundamentals.

Before its trading was suspended, the Houston-based company was the largest participant in both the wholesale gas and electric markets. Henning testified that wholesale prices after September show that gas and electricity markets “behaved reasonably well” during a time when their largest participant was in financial trouble. Despite Enron’s bankruptcy and the normal volatility in gas prices during the last quarter of 2001, Henning said that “prices continued to reflect the market fundamentals.”

One of the casualties of Enron’s bankruptcy was its highly successful electronic trading platform, EnronOnline. The platform carried the reputation of being the largest platform in terms of volume of trades and scope of the products being traded. Henning testified that when EnronOnline went dark, the market “lost an important source of price information as well as a low transaction cost method of trading.”

However, the director said market participants quickly shifted to other sources and began to increase activity on other on-line platforms. Within weeks, market participants had largely adjusted to the loss of EnronOnline, he added. In addition, Henning said that EnronOnline, or a successor — marketed by UBS Warburg — could return to the market in the future.

As bankruptcy proceedings loom ahead, the outcome of Enron contracts with buyers and sellers of gas and electricity remain in question. Henning testified that it is possible that the parties that are holding contracts with Enron “will find themselves back in the market when they had thought that they had hedged their future stream of production or their future energy needs.” Depending on the energy picture down the road, these parties might be better or worse off.

The equity prices and bond ratings of a number of energy marketers, independent power producers and gas pipelines have also been casualties of Enron’s difficulties. As a result, companies have begun to take action to strengthen their balance sheets to re-establish confidence. To strengthen their balance sheets, Henning said many companies are “reducing their capital project budgets, canceling or delaying power plant construction and delaying commitments to build gas pipeline expansions.”

Even with all of the downside, the loss of Enron has allowed other energy marketing companies to step in and capture market share. Despite the opportunity, Henning warned that aggressive marketers should insure that their companies remain financially strong.

“The events surrounding the bankruptcy of Enron have been tragic for thousands of Enron employees and investors and raise a number of serious questions regarding corporate accounting and disclosure of corporate information,” Henning said. “But from the relatively narrow perspective of energy markets, the performance in the last several months has shown an ability to respond to a major disruption in the market without an interruption of the delivery of energy to consumers and without a significant increase in consumer prices. The structure of gas and electric markets forged by federal and state regulators in accordance with the federal and state laws performed well in the face of an event that had never been seriously contemplated.”

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.